The deadline for South Korean cryptocurrency exchanges to meet the new compliance requirements is approaching, with all operators expecting to submit official license applications to the Financial Services Commission (FSC) by September 24th.
Industry players and representatives for smaller exchanges contested the new requirements for much of the past year, but to no avail. Now, local sources they expect about 40 of the country’s 60 cryptocurrency operators to be forced to close.
The crux of his objection is the requirement that all exchanges show evidence that they are operating with real-name accounts at South Korean banks. FSC argues that there is high demand from customers for more protection for your assets held on smaller crypto platforms. However, South Korean banks, for the most part, refused to participate in any risk assessment process for the exchanges, except for the country’s four main trading platforms.
These four exchanges – Upbit, Bithumb, Korbit and Coinone – already account for more than 90% of South Korea’s total trading volume, and experts have argued in recent months that the new FSC structure is poised to pave even more the crypto space in the country as a monopolized market.
In addition, estimates by Kim Hyoung-joong – professor and head of Korea University’s Cryptocurrency Research Center – predict that the mass closure of exchanges will eliminate 42 “kimchi coins” – a nickname for altcoins that are listed on smaller platforms and traded against the Korean won. Lee Chul-yi, head of local exchange Foblgate, told the Financial Times that:
“A bank run-like situation is expected close to the deadline, as investors cannot withdraw their holdings from ‘alternative currencies’ listed only on small exchanges. […] They will suddenly find themselves poor. I wonder if regulators can handle the side effects. ”
With altcoins accounting for 90% of the trading volume in South Korea’s cryptocurrency markets, the FSC said exchange traders expecting to close must notify their clients by September 17th. Cho Yeon-haeng, president of the Korea Finance Consumer Federation stated that client protection is unlikely to be the priority for brokers facing an imminent closure and that “huge losses for investors” are therefore expected due to the asset freeze and suspension of trading on smaller platforms.
Regulatory heating will also affect foreign exchange operators. Binance now broke off preemptively trading Korean won pairs this summer to ensure it doesn’t harm Korean authorities.
The new measures are designed to curb Koreans’ enthusiasm for crypto trading amid concerns that retail investors, especially those of younger generations, are borrowing too much to trade while fight against lower wages, a stagnant labor market and an increasingly expensive real estate market.
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